Don't be a Victim of Get-Rich-Quick Scams Using Bitcoin and Other Virtual Currencies: Tips from the BSP and SEC

The recent surge in the value of Bitcoin, which rose almost 20-fold from only $985 apiece at the start of 2017 to a peak of $19,343 last December 16, has attracted the attention of many Filipinos as indicated by the number of Google searches from the Philippines for the Bitcoin.

Though Bitcoin’s prices have since fallen from its peak last year by more than a fourth to only $14,228 today according to coindesk.com, Philippine financial regulators worry that a growing number of Filipinos may be tempted to invest in virtual currencies (VCs) even if they do not fully understand the underlying risks.

As shown last month, the price of Bitcoin is subject to very wild swings. While it almost doubled between December 1 and 16, it also fell by more than a third by the end of December.

Apart from the inherent risk from the volatility of virtual currencies, Philippine financial regulators warn that criminals may be using virtual currencies to steal money from gullible people through outright scams disguised as get-rich-quick schemes.

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“With the recent price surge of VCs, such as Bitcoins, the Bangko Sentral ng Pilipinas (BSP) has observed that an increasing number of individuals or entities may be tempted to ‘invest’ in VC pyramid schemes disguised as initial coin offerings (ICOs) or VC investment products. The public is therefore advised to exercise caution regarding the acquisition, possession, trading of VCs or dealing with VC-related offers,” the BSP said in a statement issued December 29.

It added: “Unlike stocks or debt issues, VCs are not backed by any company or commodity and the price is purely dependent on market demand and supply. As such, investing in VCs presents a highly speculative and risky undertaking which might result into huge financial losses.”

It should be noted, though, that the BSP recognizes the legitimate uses of virtual currencies in easing financial transactions, especially payments and fund transfers. It just frowns on virtual currencies as investment vehicles because it is highly speculative.

In fact, the BSP is one of very few central banks in the world to have released regulations for virtual currency, becoming the first country in Asia to do so. It has issued an electronic money issuer (EMI) license to Coins.ph, and a VC exchange license to two cryptocurrency startups, Betur Inc., the holding company behind Coins.ph, and Rebittance Inc., a wholly owned subsidiary of Satoshi Citadel Industries, according to a report in the Philippine Daily Inquirer.

“The Bangko Sentral recognizes that virtual currency systems have the potential to revolutionize delivery of financial services, particularly for payments and remittance, in view of their ability to provide faster and more economical transfer of funds,” said the BSP in a circular issued in January 2017. It added that such technology “may further support financial inclusion.”

8. Separate your funds and use “cold storage.” VC funds should be separated in two or more digital wallets for transactional purposes. The main wallet used to store VC funds for future use should be kept offline—popularly known as a cold storage wallet—to minimize vulnerability to theft, hacking or fraud.

Meanwhile, the Securities and Exchange Commission (SEC), which regulates the formation of corporations and issuance of equity and debt securities, said in a statement issued January 9 that initial coin offerings (ICOs) likely require clearance from the corporate regulator.

However, it didn’t say so explicitly. It only said that if cryptocurrenices or ICOs are analogous to securities or investment contracts subject to SEC regulation, “there is a strong possibility that the said virtual currency is a security under the jurisdiction of the SEC and has to be registered and necessary disclosures have to be made for the protection of the investing public.”

Nonetheless, it warned investors to be on the lookout for certain signs an investment scheme may be extremely risky. “If a promoter, issuer, broker or salesman guarantees returns, if a potential investment sounds too good to be true, or if you are pressured to act hastily, please exercise utmost caution and diligence and be wary of the risk that your investment might be lost,” the SEC said.

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